Deputy Commissioner of Income Tax, Hyderabad V. Leather Industries Development Corporation of AP Ltd., Hyderabad

CO 44/HYD/2013

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 9568 (ITAT-HYDERABAD)
• Duration Of Justice: 8 month(s) 9 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 29-05-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: misc
• Appeal Filed On: 20-09-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SOLGY JOSE KOTTARAM
• Assessee Lawyers: K PRAHLADA RAO
• Keywords: Business income; Depreciation; Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.654/HYD/13 : ASSTT. YEAR 2009 - 10 DY. COMMISSIONER OF INCOME - TAX CIRCLE 16(1), HYDERABAD V/S. M/S. LEATHER INDUSTRIES DEVELOPMENT CORPORATION OF A.P. LTD., HYDERABAD ( PAN - AAACL 1895 M ) (APPELLANT) (RESPONDENT) CROSS OBJECTION NO.44/HYD/2013 (IN ITA NO.654/HYD/13) : ASSTT. YEAR 2009 - 10 M/S. LEATHER INDUSTRIES DEVELOPMENT CORPORATION OF A.P. LTD., HYDERABAD ( PAN - AAACL 1895 M ) V/S. DY. COMMISSIONER OF INCOME - TAX CIRCLE 16(1), HYDERABAD (CROSS OBJECTOR) (APPELLANT - IN - APPEAL) DEPARTMENT BY : SHRI SOLGY JOSE KOTTARAM DR ASSESSEE BY : SHRI K.PRAHLADA RAO DATE OF HEARING 29 . 5 .201 4 DATE OF PRONOUNCEMENT 29.5.2014 O R D E R PER SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER: THIS APPEAL BY THE REVENUE AND CROSS - OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME - TAX(APPEALS) V, HYDERABAD DATED 30.01.2013 FOR THE ASSESSMENT YEAR 2009 - 10. I TA NO 654/ HYD/2013 & CO THEREIN M/S. LEATHER INDUSTRIES DEVELOPMENT CORPORATION OF A.P. LTD., HYDERABAD 2 REVENUES APPEAL : ITA NO.654/HYD/2013 2. THE FIRST ISSUE INVOLVED IN TH IS APPEAL IS AGAINST THE DECISION OF THE CIT(A) IN HOLDING THAT GRANT OF RS. 2,03,00,000/ - (THE AO HAS TAKEN THE AMOUNT AS RS.2,30,00,000) RECEIVED BY THE ASSESSEE FROM THE G OVERNMENT OF ANDHRA PRADESH WAS A CAPITAL RECEIPT NOT SUBJECT TO TAX. 3. FACTS IN BRIEF RELATING TO THIS GROUND ARE THAT T HE A SSESSEE - CORPORATION IS A PUBLIC SECTOR UNDERTAKING ESTABLISHED IN 1973, WITH THE MAIN OBJECT OF UPLIFTING THE POOR COBBLERS T O A HIGHER STANDARD OF LIVING ABOVE THE POVERTY LINE. IN 2001, THE GOVERNMENT OF ANDHRA PRADESH VIDE GO MS. NO . 573 DATED 26.11.2001 NOTIFIED THE ASSESSEE AS THE NODAL AGENCY FOR ESTABLISHING LEATHER INDUSTRIAL PARKS AT VARIOUS PLACES IN THE STATE, WITH A V IEW TO GENERATE EMPLOYMENT AND VALUE ADDITION. THE GOVERNMENT HAD BEEN PROVIDING FUNDS TO THE ASSESSEE OVER THE YEARS. FOR THE YEAR UNDER APPEAL , VIZ. FINANCIAL YEAR 2008 - 09 , RELEVANT FOR ASSESSMENT YEAR 2009 - 10 , THE A SSESSEE WAS GRANTED SUBSIDY OF RS. 2.03 CRORES , VIDE CF G.O.RT NO 39 DATED 21.1.2009 , A COPY OF WHICH IS PLACED AT PAGES 29 AND 30 OF THE PAPER BOOK. THE ASSESSING OFFICER, OBSERVING THAT THIS GRANT WAS GIVEN TO MEET THE EXPENSES TOWARDS SALARIES, ETC., TREATED THIS AMOUNT OF SUBSIDY AS INCOME OF REVENUE NATURE, AND CONSEQUENTLY BROUGHT THE SAME TO TAX. 4. ON APPEAL, BEFORE THE CIT(A), THE ASSESSEE SUBMI T TED THAT THE GRANT RECEIVED BY THEM IS A CAPITAL RECEIPT AND IN SUPPORT OF THAT PROPOSITION, QUOTED EXCERPTS EXTENSIVELY F ROM A PLETHORA OF CA S E - LAWS. IT ALSO REFERRED TO TH E AUDITED ACCOUNTS AND STATUTORY AUDITORS REPORT IN THAT REGARD, MORE SPECIFICALLY THE OBSERVATION IN THE AUDITORS REPO R T ON TH E ISSUE OF AUTHO R ISED CAPITAL, WHICH , AS TAKEN FROM THE IMPUGNED ORDER OF THE CIT (A), READ AS FOLLOWS - D) THE AUTHORIZED SHARE CAPITAL O F THE CORPORATION IS RS.4,00,00,000/ - . THE ISSUED, SUB S CRIB E D AND PAID UP CAPITAL OF THE CORPO R ATION AS ON 31.03 . ,2009 IS RS.3.90 CRORES. IN AD D ITION TO THIS, THE GO V ERNMEN T OF ANDHRA PRADESH HAS RELEASED AN AMOUNT O F RS .3,20,30,000 TOW A R D S SHARE I TA NO 654/ HYD/2013 & CO THEREIN M/S. LEATHER INDUSTRIES DEVELOPMENT CORPORATION OF A.P. LTD., HYDERABAD 3 MONEY RECEIVED IN ADVANCE AND THE COMMI S SION E R OF I NDUSTRIES HAVE TRANSFERRED THE AS S ETS TO THE E X TENT OF RS.15,05,434/. WHICH IS TAKEN AS SHARE MONIES RECEIVED IN ADVANCE AS PER G. O.MS.NO.102 OF INDU S TRIES & COMMERCE DEPARTM E NT, DATED 24.01.1990 FOR WHI C H ALLOTMENT OF SHARES IS PENDING. THE CORPORATION HAS RECEIVED AN AMOUNT OF RS .11,82,24,882/ - FROM GOVERNMENT OF A.P. TOWARDS INVESTMENTS FOR FUN C TIONING OF THE CORPO R ATION UNDER DEV ELOPMENT SCHEMES FOR LEATH E R I NDUSTRIAL PARK S FROM 2003 - 904, 2004 - 05, 2005 - 06, 2006 - 07, 2007 - 08 AND 2008 - 09. AS P E R THE SUGGESTION S O F THE ACCOUNTANT GENERAL, THE CORPORATION HAS IN C LU D ED RS.11,82,24,882/ - UNDER EQUITY DURING THE Y E AR. THE CIT(A) FORWAR DED THE RELIANCE PLACED BY THE ASSESSEE ON TH E AUDITED AC C OUN T S AND CAG REPORT TO THE ASSESSING OFFICER FOR HIS COMMENTS. IN HIS REMAND REPORT, THE ASSESSING OFFICER RELYING ON THE EARLIER SUBMISSIONS MADE BY TH E ASSESSEE VIDE LETTER DATED 14.10.2011, DUR ING THE SCRUTINY PROCEE D IN G S REITERATED THAT AS THE GRANT WAS RELEASED FOR PURPOSE OF MEETING SALARIES OF THE EMPLOYEES OF THE CORPORATION, THE GRANT IS RE V ENUE IN NATURE AND WAS RIGHTLY TREATED AS IN C OM E O F THE ASSESSEE. THE CIT(A), CONSIDERING THE CASE - LAW RELIED BY THE ASSESSEE AND THE REPORT OF THE COMPTROLLER AND AUDITOR GENERAL OF INDIA, CONCLUDED THAT THE GRANTS RECEIVED BY THE ASSESSEE FROM THE GOVERNMENT UNDER CAPITAL OUTLAY ARE TO BE TREATED AS CAPITAL RECEIPTS, AND CONSEQ UENTLY NO ADDITION IS CALLED FOR ON THE ISSUE. HE ACCORDINGLY DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. 5. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, REVENUE IS IN APPEAL BEFORE US ON THIS ISSUE. 6. WE HEARD BOTH SIDES AND PERUSED T HE ORDERS OF THE REVENUE AUTHORITIES. THE POINT ARISING FOR CONSIDERATION IS THE NATURE OF SUBSIDY RECEIVED BY THE ASSESSEE FROM THE GOVERNMENT, WHICH DETERMINES THE TAXABILITY OF THE AMOUNT SO RECEIVED BY THE ASSESSEE. FOR THE YEAR UNDER APPEAL , VIZ. FINANCIAL YEAR 2008 - 09 , RELEVANT FOR ASSESSMENT YEAR 2009 - 10 , THE A SSESSEE WAS GRANTED SUBSIDY OF RS. 2.03 CRORES , VIDE CF G.O.RT NO 39 DATED 21.1.2009 , VIDE LETTER N O LR. NO. LIDCAP/1 - 49/75 DATED 13.10.2011 , A COPY OF WHICH IS FURNISHED AT PAGE 7 OF THE PAPER BOOK , ADDRESSED BY THE ASSESSEE TO THE PRINCIPLE SECRETARY TO GOVERNMENT, IT HAS BEEN STATED THAT SO FAR THE G OVERNMENT HAD I TA NO 654/ HYD/2013 & CO THEREIN M/S. LEATHER INDUSTRIES DEVELOPMENT CORPORATION OF A.P. LTD., HYDERABAD 4 GRANTED RS. 30.82 CRORES WHICH HAS BEEN CLASSIFIED AS INVESTMENT BY THE GOVERNMENT. BUT IT WOULD APPEAR THAT THE COMPANY HAS BEEN CLASSIFYING THE SAME AS GOVERNMENT GRANT. THIS IS A MISTAKE AS POINTED OUT BY THE ACCOUNTANT G ENERAL VIDE HIS REPORT DATED 31.3.2011 FOR THE FINANCIAL YEAR 2004 - 05 (PAGE 13 OF THE PAPER BOOK). HOWEVER , IN THE ACCOUNTS OF THE A SSESSEE FOR THE Y EAR ENDED 31.3.2009, THE AMOUNT GRANTED FOR THE YEAR UNDER APPEAL VIZ., RS. 2,03,00,000/ - HAS BEEN SHOWN AS A MOUNTS RECEIVED AS INVESTMENTS FROM GOVT OF AP. (RS. 9,79,25,000/ - AS ON 31.3.2008 AND RS. 11,82,24,882/ - AS ON 31.3.2009) AND IS SHOWN AS PART OF SHARE CAPITAL. IN THE AUDITORS REPORT FOR THE ACCOUNTS FOR THE YEAR ENDED 31.3.2009 , RELEVANT FOR THE YEAR UNDER APPEAL , AT ITEM 12 (D) (AT PAGE 73 OF THE PAPER BOOK), IT HAS BEEN MENTIONED THAT THE SUM OF RS. 11,82,24,882/ - RECEIVED FROM AP GOVERNMENT TOWARDS INVESTMENTS FOR FUNCTIONING OF THE CORPORATION UNDER D EVELOPMENT S CHEMES FOR L EATHER INDUSTRIAL PARKS FROM 2003 - 04 TO 2008 - 09. AS PER THE ADVICE OF THE ACCOUNTANT G ENERAL, THE CORPORATION HAS INCLUDED RS. 11,82,24,882 / - UNDER EQUITY DURING THE YEAR. CONSEQUENTLY, T HE ISSUED, SUBSCRIBED AND PAID UP CAPITAL AND SHARE APPLICATION MONEY EXCEEDED THE AUTHORISED SHARE CAPITAL. THE AUDITOR HAS , THEREFORE, POINTED OUT THAT THE CORPORATION HAS NOT TAKEN NECESSARY STEPS TO ENH ANCE THE AUTHORISED SHARE CAPITAL AND ISSUE SHARES ACCORDINGLY. 7. WE FIND THAT IN THEIR LETTER NO LR. NO. LIDCAP/1 - 49/75 DATED 13.10.2011 ADDRESSED BY THE ASSESSEE TO THE PRINCIPLE SECRETARY TO GOVERNMENT, REFERRED TO SUPRA, IT HAS BEEN STATED THAT SO FAR THE GOVERNMENT HAD GRANTED RS. 30.82 CRORES WHICH HAS BEEN CLASSIFIED AS INVESTMENT BY THE GOVERNMENT BUT HAS BEEN ACCOUNTED AS GRANT BY THE COMPANY. THE AUDITORS OF ACCOUNTANT GENERAL, DURING THEIR REVIEW RAISED AN OBJECTION THAT THE ISSUED, SUBSCR IBED AND PAID UP CAPITAL EXCEEDED THE AUTHORISED CAPITAL AS ON 31.3.2010. THEREFORE THE ASSESSEE HAD REQUESTED THE GOVERNMENT TO CONSIDER THE ABOVE AND ISSUE NECESSARY ORDERS FOR INCREASING THE SHARE CAPITAL FROM RS. 4.00 CRORES TO RS. 35.00 CRORES. TH US FROM THE ABOVE IT IS CLEAR THAT THE AMOUNTS GIVEN BY THE AP I TA NO 654/ HYD/2013 & CO THEREIN M/S. LEATHER INDUSTRIES DEVELOPMENT CORPORATION OF A.P. LTD., HYDERABAD 5 GOVERNMENT TO THE TUNE OF RS. 11.82 CRORES GIVEN UPTO AY 2008 - 09, WHICH INCLUDES IMPUGNED AMOUNT OF RS. 2.03 CRORES GIVEN FOR THE YEAR UNDER APPEAL, HAS BEEN TREATED BY THE STATE GOVERNMENT AS INVESTMENT IN THE ASSESSEE CORPORATION. EVEN THOUGH IN THE EARLIER YEARS THE AMOUNTS WERE SHOWN AS GRANTS FROM THE STATE GOVERNMENT ON BEING POINTED OUT BY THE ACCOUNTANT GENERAL, THE ASSESSEE HAS INCLUDED THE AMOUNTS AND SHOWN IT AS PART OF THE SHARE CAP ITAL. THEREFORE , THE AMOUNT GIVEN BY THE STATE GOVERNMENT SHOULD BE CONSIDERED AS CONTRIBUTION TO THE SHARE CAPITAL OF THE ASSESSEE FOR WHICH SHARES ARE YET TO BE ALLOTTED. IN THE CIRCUMSTANCES THE IMPUGNED AMOUNT OF R S. 2.03 CRORES RECEIVED FROM THE STA TE GOVERNMENT IS IN THE CAPITAL FIELD AND CANNOT BE TAXED AS REVENUE RECEIPT IN THE HANDS OF THE ASSESSEE. HENCE WE UPHOLD THE ORDER OF THE CIT(A) ON THIS ISSUE. 8. EVEN A SSUMING THAT THESE AMOUNTS ARE ONLY GRANTS BY THE STATE GOVERNMENT TO THE A S S ESSE E, UNDOUBTEDLY, THE AMOUNTS HAVE BEEN GIVEN IN CONNECTION WITH SETTING OF LEATHER INDUSTRIAL PARKS. EVEN IN THAT CASE, A NY SUBSIDY RECEIVED IN CONNECTION WITH SETTING UP OF INDUSTRY, IN WHATEVER MANNER THE SUBSIDY MAY BE GIVEN, IS IN THE CAPITAL FIELD. I N THIS BEHALF, WE ARE SUPPORTED IN THIS BEHALF BY THE RATIO LAID DOWN IN VARIOUS CASES BY THE APEX COURT AND OTHERS. IT IS PERTINENT TO REFER AT THIS JUNCTURE, TO THE DECISIONS OF THE SUPREME COURT IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LIMITED AND O THERS 228 ITR 253 (SC) , PONNI SUGARS AND CHEMICALS LIMITED (306 ITR 392 SC) AND MEPCO INDUSTRIES LIMITED (319 ITR 208 SC) , WHEREIN IT WAS HELD THAT TO DETERMINE WHETHER INCENTIVES & SUBSIDIES ARE REVENUE OR CAPITAL RECEIPTS, THE PURPOSE UNDERLYING THE INC ENTIVES IS THE DETERMINATIVE TEST. IF THE OBJECT OF THE SUBSIDY SCHEME IS TO ENABLE THE ASSESSEE TO RUN THE BUSINESS MORE PROFITABLY THEN THE RECEIPT IS ON REVENUE ACCOUNT. ON THE OTHER HAND, IF THE OBJECT OF THE SUBSIDY SCHEME IS TO ENABLE THE ASSESSEE TO SET UP A NEW UNIT OR TO EXPAND THE EXISTING UNIT THEN THE RECEIPT OF THE SUBSIDY WAS ON I TA NO 654/ HYD/2013 & CO THEREIN M/S. LEATHER INDUSTRIES DEVELOPMENT CORPORATION OF A.P. LTD., HYDERABAD 6 CAPITAL ACCOUNT. IT IS THE OBJECT FOR WHICH THE SUBSIDY/ASSISTANCE IS GIVEN WHICH DETERMINES THE NATURE OF THE INCENTIVE SUBSIDY. THE FORM OR THE MECHANISM THROUGH WHICH THE SUBSIDY IS GIVEN IS IRRELEVANT. 9. SIMILARLY, THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V/S. RAASI CEMENTS LTD. ( 351 ITR 169 ) - AP , CONSIDERED THIS VERY ISSUE, AND HELD THAT IT IS T HE NATURE AND PURPOSE OF A SU BSIDY RATHER THAN THE METHOD OF QUANTIFICATION OR TIME OF SANCTION WHICH ARE RELEVANT FOR DETERMINING WHETHER IT IS A CAPITAL RECEIPT OR REVENUE RECEIPT. IT IS WELL SETTLED THAT IF THE SUBSIDY IS GIVEN FOR SETTING UP AN INDUSTRY IN BACKWARD AREAS OR FOR REPAYMENT OF THE TERM L OAN TAKEN BY THE ASSESSEE FOR SETTING UP A NEW INDUSTRY, IT SHOULD BE TREATED AS A CAPITAL RECEIPT. 10. SIMILARLY, T HE JAMMU AND KASHMIR HIGH COURT IN THE CASE OF SHREE BALAJI ALLOYS, RAVENBHEL HEALTHCARE (P) LTD. AND PEE EII ALLOYS VS CIT AND ANR . [333 ITR 335] HAS HELD THAT WHEN A SUBSIDY OR A GRANT IS GIVEN WITH A VIEW TO PROMOTING AN ECONOMIC OR SOCIAL OBJECTIVE WHICH RESULTS IN ESTABLISHMENT OF FACILITY OR INFRASTRUCTURE, THE RECEIPT COULD BE REGARDED AS ON CAPITAL ACCOUNT AND HENCE NOT INCLUD IBLE AS INCOME OF THE APPELLANT. IN THAT CASE THE SUBSIDY WAS IN THE FORM OF REBATE OF EXCISES DUTY. 11. SIMILARLY, THE BOMBAY HIGH COU R T IN THE CASE OF CIT V/S. CHAPHALKAR BROTHERS 351 ITR 309 HELD ENTERTAINMENT SUBSIDY FOR ESTABLISHING MULTIPLEXES TH EATRES. OBJECT OF SUBSIDY TO PROMOTE CINEMA HOUSES BY CONSTRUCTING MULTIPLEX THEATRES AND HENCE IS A CAPITAL RECEIPT. 1 2 . FURTHER, THE CALCUTTA HIGH COURT IN THE CASE OF CIT V/S. RASOI LTD ( 335 ITR 438 ) HELD THAT S UBSIDY GRANTED BY STATE GOVERNMENT FOR EXPANSION OF CAPACITY, MODERNIZATION AND IMPROVING MARKETING CAPACITY IS CAPITAL RECEIPT AND THAT THE F ACT THAT SUBSIDY WAS EQUAL TO 90 PER CENT OF I TA NO 654/ HYD/2013 & CO THEREIN M/S. LEATHER INDUSTRIES DEVELOPMENT CORPORATION OF A.P. LTD., HYDERABAD 7 SALES TAX IS NOT CONCLUSIVE. SIMILARLY, IN THE CASE OF CIT V/S. UDUPI BUILDERS ( 319 ITR 440 ), KARNATAKA HI GH COURT HELD THAT S UBSIDY RECEIVED TO ENCOURAGE HOTEL INDUSTRY IN THE STATE IS A CAPITAL RECEIPT AND NOT LIABLE TO TAX. 13. THUS FROM THE ABOVE DECISIONS IT IS CLEAR THAT CHARACTER OF THE SUBSIDY WOULD DEPEND ON THE PURPOSE FOR WHICH THE SAME IS GIVE N. IF IT IS FOR PROMOTING SETTING UP OF NEW INDUSTRIES, THEN IT IS CAPITAL IN NATURE. THE METHOD OF DETERMINING THE SUBSIDY AND THE MODE OF DISTRIBUTION DOES NOT MATTER. SINCE I N THE INSTANT CASE, THE GOVERNMENT OF AP HAD TAKEN A DECISION TO DEVELOP LEA THER INDUSTRIAL PARKS IN THE STATE WHICH WILL RESULT IN HUGE EMPLOYMENT GENERATION POTENTIAL. WITH THIS IN VIEW, THE STATE GOVERNMENT DECLARED THE ASSESSEE AS THE NODAL AGENCY TO ACT AS A FACILITATOR AND FOR SETTING UP LEATHER INDUSTRIAL PARKS ALL OVER AP. AS EXPLAINED BY THE ASSESSEE IN THEIR LETTERS DT 14.10.2011 AND 28.11.2011, THE SUBSIDIES TO THE EXTENT OF RS. 15 CRORES WERE RECEIVED FROM GOVERNMENT OF AP FOR SETTING UP OF AN INTERNATIONAL LEATHER COMPLEX AT NELLORE. THE AO HIMSELF HAD HELD THAT GRANTS TO THE EXTENT OF 15 CRORES I S CAPITAL IN NATURE AND O NLY A SUM OF RS. 2.03 CRORES (WRONGLY MENTIONED AS RS. 2.30 CRORES BY THE AO) UTILISED FOR PAYING SALARIES IS REVENUE IN NATURE. HOWEVER, THERE IS NO BIFURCATION INTO TWO PARTS, AND THE ENTIRE GRANT IS FOR SETTING UP OF INDUSTRIAL PARKS AND HENCE APPLYING THE RATIO OF THE DECISIONS REFERRED TO ABOVE , THE ENTIRE SUBSIDY RECEIVED BY THE ASSESSEE HAS TO BE CONCLUDED AS OF CAPITAL NATURE. MERELY BECAUSE A PORTION OF THE GRANT IS PAID TO EN ABLE THE ASSESSEE TO MEET THE EXPENSES , IT WOULD NOT ALTER THE CHARACTER OF THE GRANT. AS HELD BY VARIOUS COURTS IN THE CASE LAW DISCUSSED ABOVE, IT IS THE OVERALL PURPOSE OF THE GRANT THAT DETERMINES THE CHARACTER OF THE GRANT. THE METHOD OF DETERMINATIO N OF THE QUANTUM OF SUBSIDY WILL NOT MATTER: SIMILARLY THE VARIOUS HEADS UNDER WHICH THE GRANTS WERE ACTUALLY SPENT IS IMMATERIAL AS SUCH EXPENSES ARE ONLY PART OF THE OVERALL OBJECT AND PURPOSE FOR WHICH GRANT HAS BEEN GIVEN. THUS , EVEN IF THE I TA NO 654/ HYD/2013 & CO THEREIN M/S. LEATHER INDUSTRIES DEVELOPMENT CORPORATION OF A.P. LTD., HYDERABAD 8 AMOUNT OF R S. 2.03 GIVEN BY THE STATE GOVERNMENT IS TREATED AS GRANT/ SUBSIDY, THE SAME IS A CAPITAL RECEIPT NOT TAXABLE. 14. IN THE LIGHT OF THE ABOVE DISCUSSION, WE UPHOLD THE ORDER OF THE CIT(A) AND REJECT THE GROUNDS OF THE REVENUE ON THIS ISSUE. 15. THE NEXT GROUND OF APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) PERMITTING THE LOSS CLAIMED BY THE ASSESSEE. 16. FACTS IN BRIEF RELATING TO THIS ISSUE ARE THAT T HE ASSESSING OFFICER OBSERVED ONGOING THROUGH THE INFORMATION FURNISHED BY THE ASS ESSEE CORPORATION VIDE LETTER DATED 8.9.2010 THAT IT HAD STOPPED THE MANUFACTURING ACTIVITIES SINCE THE YEAR 1990. HOWEVER, HE NOTED THAT THE ASSESSEE CLAIMED IN THE PROFIT & LOSS ACCOUNT, EXPENSES UNDER DIFFERENT HEADS TO THE EXTENT OF RS.1,09,30,359 AND DECLARED LOSS OF RS.1,78,34,959. IN THE ABSENCE OF ANY BUSINESS ACTIVITY DURING THE YEAR, THE ASSESSING OFFICER NOTED THAT THE ASSESSEES CLAIM OF LOSS FROM BUSINESS TO THE EXTENT OF RS.1,78,34,959 CANNOT BE ACCEPTED. THE ASSESSING OFFICER ACCORDINGL Y DISALLOWED THE SAME, AND TREATED THE ASSESSEES INCOME FROM BUSINESS DURING THE YEAR AS NIL. 17. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A) ON THIS ISSUE AND SUBMITTED THAT THE ASSESSING OFFICER MISTOOK THE SU B MISSION OF THE ASSESSEE THAT THERE WERE NO MANUFACTURING ACTIVITY AS NO BU S IN E SS ACTIVITY. IN SUPPORT OF THIS CONTENTION, IT IS SUBMITTED THAT THERE ARE SALES OF FINISHED GOODS OF THE ORDER OF R S .2,51,557 DURING THE Y E AR, AND AS PER THE AUDITED ACCOUNTS, THERE WAS AN OPENING STOCK O F R S .3,87,818 AS ON 1.4.2008 AND RAW M A TERIAL CONSUMPTION. THE PURCHASE OF FINISHED GOODS AMOUNTED TO RS .7,86,240. AGAINST THESE OPENING STOCKS AND PU R CHA S ES, SALES ARE OF THE O R DER OF RS.79,84,730 - WITH VALUE OF CLO S IN G STOCK OF RS .69,329. TAKING THESE FACTUAL ASPECTS INTO ACCOUNT, THE CIT(A) NOTED I TA NO 654/ HYD/2013 & CO THEREIN M/S. LEATHER INDUSTRIES DEVELOPMENT CORPORATION OF A.P. LTD., HYDERABAD 9 THAT THOUGH THE ASSESSEE C ORPORATION STOPPED MANUFACTURING ACTIVITY OF LEATHER PRODUCTS, IT CONTINUED WITH THE ACTIVITY OF PURCHASE AND SALE OF FINISHED GOODS AND CONSEQUENTLY, THE CONCLUSION OF THE ASSESSIN G OFFICER THAT SIN C E THERE WAS NO BU S IN ES S ACTIVITY, T H E BUSINESS LOSS OF R S .1,78,34,959 CANNOT B E ALLOWED, IS NOT CORRECT. HE ACCORDINGLY DELETED THE DISALLOWANCE MADE BY THE CIT(A) IN RESPECT OF ASSESSEES CLAIM OF LOSS. 18. AGGRIEVED, REVENUE IS IN APPEAL. 19. W E HEARD BOTH SIDES AND PERUSED THE ORDERS OF THE LOWER AUTHO R ITIES. TAKING INTO ACCOUNT THE FIGURES OF SALE OF GOODS, PURCHASE AND FIGURES OF OPENING AND CLOSING BALANCES OF STOCKS, RELEVANT FOR THE YEARS UNDER APPEAL, THE CIT(A) AGREED WI TH THE PLEA OF THE ASSESSEE THAT TH E RE WAS NO STOPPAGE OF BUSINESS ACTIVITY, AND THE ASSESSING OFFICER MISTOOK THE PLEA OF THE ASSESSEE THAT THE MANUFACTURING ACTIVITY WAS STOPPED AS ADMISSION OF STOPPAGE OF BUSINESS ACTIVITY. NO MATERIAL TO THE CONTRARY HAS BEEN BROUGHT ON RECORD BEFORE US BY THE REVENUE. I N T H E CIRCUMSTANCES, WE FIND NO INFIRMITY IN THE CONCLUSION OF THE CIT(A) ON THIS ISSUE. WE ACCORDINGLY UPHOLD THE ORDER OF THE CIT(A) AND REJECT THE GROUNDS OF THE REVENUE ON THIS ISSUE. 20. THE NEX T GROUND OF THE REVENUE IN THIS APPEAL RELATES TO TREATMENT OF LEASE RENTAL CLAIMED BY THE ASSESSEE AS BUSINESS INCOME , AS AGAINST THE ASSESSING OFFICERS ACTION IN ASSESSING THE SAME UNDER THE HEAD PROPERTY INCOME . 21. FACTS IN BRIEF A R E THAT THE ASSESSEE ADMITTED LEASE RENTAL INCOME OF RS .12,33,550 AS INCOME FROM BUSINESS. AGAIN S T THIS, THE ASSESSING OFFICER TREA T ED THIS IN C OME AS FROM PROPERTY, AND ACCORDINGLY ARRIVED AT AN INCOME OF R S .8,63,450 AFT E R ALLO W IN G 30% DEDUCTION UNDER I TA NO 654/ HYD/2013 & CO THEREIN M/S. LEATHER INDUSTRIES DEVELOPMENT CORPORATION OF A.P. LTD., HYDERABAD 10 S .24 OF THE ACT. IN THAT PROCESS, THE ASSESSING OFFICER DID NO T ALLOW ANY DEPRECIATION CLAIMED BY THE ASSESSEE ON THE ASSETS LEASED OUT. 22. AGGRIEVED, ASSESSEE PREFERRED APPEAL ON THIS ISSUE BEFORE THE CIT(A) AND IT WAS SUBMITTED THAT THE ASSESSEE, HAV ING STOPPED MANUFACTURING ACTIVITY, L EASED OUT THEIR PREMI S ES AND PLANT AND MACHINERY AND REALIZED RENTAL INCOME . AS THE ASSETS WERE ACQUIRED AND UTILIZED FOR THE BUSINESS ACTIVITY OF THE CORPORATION, THE INCOME DERIVED HAS TO BE TREATED AS BUSINESS INCO ME ONLY , AND NOT AS PROPERTY INCOME . ACCEPTING THIS CONTENTION OF THE ASSESSEE, THE CIT(A) DIRECTED THE ASSESSING OFFICER TO ASSESS THE INCOME UNDER THE HEAD BUSINESS. AGGRIEVED, REVENUE PREFERRED APPEAL BEFORE US ON THIS ASPECT. 2 3 . WE HEARD BOTH SI DES AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. IT IS EVIDENT FORM THE MATERIAL ON RECORD THAT THE ASSETS THAT YIELDED THE RENTAL INCOME ARE THE BUSINESS PREMISES, PLANT AND MACHINERY OF THEE ASSESSEE, WHICH WERE HITHERTO USED BY THE ASSESSEE FOR IT S OWN BUSINESS ACTIVITY, AND SUCH LEASING OUT WAS DONE IN VIEW OF THE STOPPAGE OF MANUFACTURING ACTIVITY BY THE ASSESSEE, JUST TO USE THE IDLE ASSETS FOR INCOME GENERATION PURPOSES. NO EVIDENCE HAS BEEN BROUGHT ON RECORD BY THE REVENUE TO CONTRADICT THES E FINDINGS. IN THIS VIEW OF THE MATTER, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE CIT(A) ON THIS ISSUE. WE ACCORDINGLY UPHOLD THE ORDER OF THE REVENUE AND REJECT THE GROUNDS OF THE REVENUE ON THIS ISSUE. 2 4 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. CROSS OBJECTION OF THE ASSESSEE : C.O. NO.44/HYD/2013 25. IN THE CROSS - 0OBJECTION OF THE ASSESSEE, GROUNDS RAISED ARE MERELY SUPPORTIVE OF THE ORDER OF THE CIT(A), IN THE CONTEXT OF THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL. AS SUCH, THE GROUNDS RAISED IN THE I TA NO 654/ HYD/2013 & CO THEREIN M/S. LEATHER INDUSTRIES DEVELOPMENT CORPORATION OF A.P. LTD., HYDERABAD 11 CROSS OBJECTIONS DO NOT CALL FOR ANY INDEPENDENT ADJUDICATION. HENCE, THE CROSS OBJECTION OF THE ASSESSEE, BEING REDUNDANT, IS REJECTED. 26. TO SUM UP, APPEAL OF THE REVENUE IS DISMISSED AND THE CROSS OBJECTION OF THE ASSESSEE, BEING REDUNDANT, IS REJECTED. ORDER PRONOUNCED IN THE COURT AT THE CONCLUSION OF HEARING ON 29.5.2014. SD/ - SD/ - (CHANDRA POOJARI ) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DT/ - 29 TH MAY, 2014 COPY FORWARDED TO: 1. M/S. LEATHER INDUSTRIES DEVELOPMENT CORPORATION OF A.P. LTD., 5 - 77/27 DURGA HUSSAIN SHAWALI. GOLCONDA POST, HYDERABAD 2 . DY. COMMISSIONER OF INCOME - TAX, CIRCLE 16 (1), HYDERABAD 3. COMMISSIONER OF INCOME - TAX(APPEALS) V, HYDERABAD 4. COMMISSIONER OF INCOME - TAX I V HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S